Innovating with Economic Utility: Creating Products that Customers Want
The four types of economic utility and how they can help you develop successful products.
As entrepreneurs and product managers, our ultimate goal is to create services that customers love. But how do we know what customers want? Understanding economic utility could be a way to help us answer that question.
Economic utility refers to the level of satisfaction a customer experiences when using a particular product, and understanding the different types of economic utility is essential for developing products that stand out in the market.
This article will explore the four types of economic utility with real-life examples and provide actionable steps for incorporating this concept into a product development process. Join me as we delve into the world of economic utility and discover how it can help us create successful products.
4 Types of Economic Utility
Form Utility
Form utility involves arranging existing parts or raw materials to create something more valuable. Brands like Nike and Apple are known for their ability to add value to their products through innovative design and marketing, creating finished goods that are highly desirable to consumers.
One example of a startup that excels in form utility is Impossible Foods. Using advanced food science, the company creates plant-based meat alternatives that closely resemble the taste, texture, and appearance of real meat, adding significant value for consumers looking for sustainable and ethical food options.
More practices:
- Innovative packaging design for consumer products
- Biodegradable or compostable alternatives to traditional plastic products
- New materials or technologies that can improve the durability or functionality of products
Time Utility
Time utility refers to making something available at the right time or with greater speed. Amazon Prime is a well-known example of a service that adds time utility by providing customers with free and fast shipping, making products more accessible to them in a shorter amount of time.
Another example of time utility is provided by navigation apps such as Waze and Google Maps, which help drivers save time on their commutes with real-time traffic updates and alternative routes. By providing this information quickly and efficiently, these apps add value for users who need to get to their destinations as fast as possible.
More practices:
- On-demand services for home cleaning, repairs, or maintenance
- Time-saving tools or technologies for businesses, such as automated invoicing or scheduling software
- Virtual or remote healthcare services to reduce wait times and improve access to care
Place Utility
Place utility refers to making a product or service easily accessible to consumers. Starbucks is a great example of a business that creates place utility by having locations all around the world, making it simple for customers to find a convenient spot to grab a cup of coffee.
Another example of place utility is Peloton, a fitness equipment and streaming company that offers online classes and on-demand workouts from the comfort of your own home. This adds value by providing customers with a new and convenient way to access fitness services.
More practices:
- Smart city technologies to improve public transportation and reduce traffic congestion
- E-commerce platforms that enable faster delivery and easier returns for online purchases
- Pop-up stores or mobile retail experiences that make it easier for customers to access products in different locations
Possession Utility
Possession utility involves removing barriers that prevent customers from obtaining or possessing a product. Airbnb is a platform that allows people to rent out their homes or apartments, adding possession utility by providing customers with a new way to obtain temporary housing.
Ride sharing companies like Lime and Bird also add possession utility by providing customers with a convenient way to access transportation without owning a vehicle. This removes the need for customers to purchase and maintain their own cars, making it easier for them to get around.
More practices:
- Collaborative consumption or sharing economy platforms for high-cost items, such as luxury goods or high-end sports equipment
- Subscription-based services that offer access to products or experiences for a lower cost than ownership
- Technology-enabled rental services for everyday items, such as clothing or furniture, to reduce waste and improve sustainability
5 or 6 Types of Utility?
In addition to the four traditional types of utility (form, time, place, and possession), some sources include service utility, information utility, or knowledge utility as additional types.
Service utility refers to the value added by providing exceptional customer service or support. Information utility involves providing customers with useful information about a product or service, such as product specifications or customer reviews. Knowledge utility involves providing customers with access to specialized knowledge or expertise that enhances the value of a product or service.
These additional types of utility can be particularly relevant in industries such as healthcare, education, and technology where the quality of service and information can have a significant impact on customer satisfaction and loyalty.
Interestingly, although rooted in economics, economic utility is closely related to Utility in Marketing, a similar idea in marketing that aims to create customer value. So, don’t be surprised when you learn the terms in a marketing course.
Develop your Next Product with Economic Utility
When developing a new product or service, economic utility can be a valuable framework for brainstorming. It helps you think about how your offering can provide value to customers in a structured way. Here are some ways you can use economic utility to guide your brainstorming process:
- Generate ideas: Use the four types of economic utility as inspiration for generating ideas. For instance, you can think about how your product or service could save customers time (time utility) or make it more convenient for them to access it (place utility).
- Identify opportunities: Economic utility can help you identify gaps in the market where customers’ needs are not being met. For example, if there are no companies offering possession utility for a particular product or service, this could be an opportunity for you to fill that gap. However, it’s also important to analyze why there’s no existing service. Do you have the expertise needed for this specific industry? Are there any regulatory or patent restrictions to consider?
- Evaluate ideas: When evaluating and prioritizing ideas, economic utility serves as a valuable tool to determine the value you offer to customers. For instance, an idea that provides a high level of time utility or form utility may be more valuable than an idea that only provides possession utility.
- Refine ideas: Economic utility can also guide you in refining and enhancing your ideas to provide even more value to customers. For example, if your idea already offers some level of time utility, think about ways to improve it further to provide even greater time savings.
Economic Utility and Value Proposition
Economic utility and value proposition are two sides of the same coin when it comes to creating products or services that satisfy customers. The economic utility aspect focuses on delivering the level of satisfaction customers experience when using a particular product or service, while the value proposition provides a clear and compelling statement of how your product or service meets customer needs and offers value that competitors cannot match. Together, these concepts can help differentiate your product or service and attract customers. To apply the principles of economic utility to your value proposition, you can take the following steps:
- Identify customer needs: Begin by identifying the needs of your target customers. Conduct market research to understand the problems they face and what they need to solve them.
- Determine the type of economic utility needed: Based on the customer needs identified, determine which type of economic utility will add the most value to your product or service. Is it form utility (e.g., design or aesthetics), time utility (e.g., convenience or speed), place utility (e.g., location or accessibility), or possession utility (e.g., ownership or exclusivity)?
- Develop a value proposition: Once you have identified the type of economic utility needed, craft a clear and compelling value proposition that communicates how your product or service meets customer needs. Emphasize the economic utility provided by your product or service and how it addresses customer pain points.
- Test your value proposition: Test your value proposition with potential customers to ensure that it resonates with them and effectively conveys the value of your product or service. This feedback can help you refine your value proposition.
- Refine your product or service: Based on customer feedback, make any necessary adjustments to your product or service to ensure that it delivers the economic utility that customers need and want.
Remember, a successful value proposition clearly communicates the economic utility that your product or service provides and how it satisfies customer needs. By following these steps, you can develop a value proposition that distinguishes your product or service and generates customer interest.
Conclusion
Economic utility is a valuable concept for entrepreneurs and product managers to understand. By understanding the different types of economic utility, you can create products and services that provide value to customers and meet their needs. You can also use economic utility to guide your brainstorming process and develop new ideas that will resonate with customers!
Learn More
- Check out What Are the 4 Types of Economic Utility? by Investopedia to gain a comprehensive perspective on behavioral economics.
- If you’re not familiar with a value proposition, check out How to Create an Effective Value Proposition by HBS Online.
- Read The Minimalist Entrepreneur, a book by Sahil Lavingia, if you’re interested in building a sustainable business with limited resources. I highly recommend the book as it’s where I first learned about economic utility. It provides a practical approach to creating products and services that benefit specific communities by focusing on small features and iterative improvements.
